Get Ready for the Global Supply Chain Ripple Effects of the China Lockdowns (Bjorn Vang Jensen, Sea-Intelligence)

Show notes

What are the downstream consequences of the lockdowns in China for global logistics and supply chain management? That's what we discuss in this episode of The Logistics Tribe with Bjorn Vang Jensen.

Bjorn is a well-known industry figure and a veteran of the global logistics business. He has seen the world of supply chains from many different angles. From the ocean carrier perspective, from the 3PL perspective, from the perspective of a manufacturing brand with a global footprint and now as an advisor at the consulting firm Sea Intelligence.

In this episode Bjorn talks to our host Boris Felgendreher about the perfect storm of transportation and supply chain disruption that is brewing on the horizon as a result of the lockdowns in China.

Bjorn offers some very keen observations and assessments about how that crisis situation there will inevitably spill over and cause all kinds of first, second and third order effects across global logistics and supply chains.

Helpful links:

Bjorn Vang Jensen on LinkedIn:

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Boris Felgendreher on LinkedIn:

Our supporters GreyOrange:

Show transcript

00:00:02: Hello and welcome to the logistics drive I'm your host boys felgendreher and my guest today is beyond from Jensen.

00:00:12: Bjorn is a well-known industry figure and a veteran of the global logistics business.

00:00:16: He has seen the world of Supply chains from many different angles from the ocean carrier perspective from the 3pl perspective from the perspective of a manufacturing brand with the global footprint.

00:00:25: And now as an advisor at the consulting firm sea-intelligence for this episode I talk to Buren about the perfect storm of transportation and supply chain disruption,

00:00:34: there is brewing on the horizon as a result of the lockdowns in China

00:00:37: Ian offers some very keen observations and assessments about how that crisis situation there will inevitably spill over and cause all kinds of first second and third order effects across Global Logistics and Supply chains.

00:00:49: Super interesting and also quite scary stuff,

00:00:52: before we get started a quick thanks to our supporters grey orange grey orange automates Warehouse operations through combination of AI software and autonomous mobile robots

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00:01:16: Check them out at grey orange Dot

00:01:19: come all right and now we're onto the show with blue and pink Jensen from sea-intelligence enjoy hello Bureau my friend welcome to the logistics tribe thanks for being on the program and thank you for it's a great to be back

00:01:32: I guess and the congratulations on this excellent sir

00:01:36: it's cool thank you thank you beyond and slightly scared about where this conversation is going to go because if we talk about this now it's sort of a.

00:01:44: Free-flowing conversation so you never know that's how we roll have no notes prepared no nothing no questions that's how we roll.

00:01:51: But of course I've done my research I've monitored the scene of read some articles that appeared that we work Road and Wall Street Journal and Linkedin posts so

00:01:59: of course I mentioned briefly in my intro that I recorded prior to our conversation what your back when I was but maybe in a short pitch just give people a quick idea for those

00:02:08: few people in the audience that don't know you please give us a quick version of will be honest yeah thank you.

00:02:15: For the confidence booster know I worked about 37 years and it's a national supply chain.

00:02:22: Management and what I bring to the table is experienced from nearly every facet of it.

00:02:29: So I've worked for a carrier government background in most.

00:02:33: Then went into Freight forwarding for being to 3pl completely left shipping and fell in love with supply chain Network design.

00:02:43: Risk management simulations and all the math behind it catapulted me into to Electrolux,

00:02:52: where I said for 15 years first and save the supply chain for Asia Pacific and then it's head of probability of success based in Singapore shrimp most of my career.

00:03:02: In Asia little bit in the US.

00:03:05: And now back in Denmark which is obviously where I'm from feel that I'm finally old enough and wise enough and had enough gray hair to be a consultant and that's going well to which these are crazy times,

00:03:18: the and then we're really happy to be able to help,

00:03:21: people navigate yeah it looks like you jump ship right before shit hit the fan that's when you decided yeah from the active role to the Consulting role is one of those one of those serendipitous event site,

00:03:35: care is Serendipity sometimes Place nearly always plays a role in people's career and where it takes them and.

00:03:43: I guess yeah right place at the right time sometimes think of how difficult

00:03:48: be in what sort of hell I would have to go through if I set my old chair

00:03:52: have you to be the goalkeeper for what's going on in the market and I'm quite happy to be on the other side I'll in the middle of it I might and I have you on the other side of because the other side's I would be the service providers but the sit in the middle is fascinating because you really get to see the

00:04:06: the games that are played between the two sides.

00:04:09: Almost from a distance and then you can sort of dive in and help people navigate it in a proper way yeah you're not and as you know I talked to your colleague Yahoo Schmidt.

00:04:19: In August of last year so that's yeah just about eight months ago we talked about yes it's an analysis of the global Shipping chaos right here we are eight months later and what's going on is the.

00:04:31: So depending on who you talk to and who you speak to it's either we're still in the middle of the big crisis stuff is over it's getting better or the other extreme okay what's happening now,

00:04:41: China lockdown Ukraine war all of that stuff happening

00:04:45: is the Big Daddy and and put it all together and should put the van and will we're going to experience stuff we've never really seen we're like just as a quick

00:04:53: where do you fall before we jumped into details I Fallen the under on the pessimistic side with it not my nature,

00:05:00: these also know me would not would not

00:05:04: Place me in that basket I'll fall in the pessimistic side but I don't take sides because I think the Outlook is very challenging and will remain challenging for a very long time.

00:05:17: For both sides obviously,

00:05:20: there are enormous contracts between carriers and and their customers right now mainly related to Freight rates and schedule accuracy which is.

00:05:30: According to put it mildly

00:05:36: but also the carrier's themselves it's not forget that it's also no fun to try and run a shipping line when ports closed down willy-nilly all over the place and.

00:05:47: And and carries a yellow sari customers are yelling at you from their side and and you're on the pressure to maximize.

00:05:55: Yield because a as a carrier you basically have made anybody.

00:06:00: For for 10 or 15 years and now is the time to make hay while the while the sun shines.

00:06:06: I can sympathize with that as well but the violence and the speed with which it's happened is is I think what's causing the.

00:06:15: Yeah it was in the rift.

00:06:18: And it is genuine drift there is tremendous amount of what I've you know there are articles called Bad Blood.

00:06:27: Right now between between carriers and their customers again.

00:06:32: Going back to the the speed the brutality the scale of changes especially on the right side of course.

00:06:40: And because because customers have been used to.

00:06:45: Whole different world right a world in which they didn't have to worry about space because it was always available somewhere,

00:06:53: some carrier would always gladly take those extra boxes and and say thank you.

00:07:00: And and and so you have what I'm seeing and sensing of a hole almost a generation.

00:07:08: Or cycler procurement professionals who have never seen a crisis.

00:07:15: Let alone the crisis of this magnitude right I mean the last time we saw something like this

00:07:20: was probably in 2010 right after the financial crisis you remember obviously who doesn't that the grades plummeted in 2009 to completely ridiculous levels I remember being offered by reputable carrier

00:07:35: rate from Shanghai to centers of $50 by cue ball in

00:07:40: just this to move the box right carry the shape of us were ripping up contracts and renegotiating and.

00:07:49: And the 2010 of course the shoe was on the other foot and the shape of you.

00:07:54: Who behaved very badly here they paid the price right yeah but different geography look at the magnitude.

00:08:01: Right in those days okay so that contain up from from Shanghai to Santos just,

00:08:06: name an example right was prior to the crisis 2,500 dollars during the crisis $50 was an outlier but certainly 6:00 to 8:00 9:00.

00:08:18: Right and then we went out to 4000 then we thought the sky was falling.

00:08:23: Right now have check the rate from Shanghai to Santos lately but I'm betting it's well north of ten thousand dollars that's what I mean when I say the brutality in the scale and the speed with which it had nobody saw it coming.

00:08:37: Right and all of a sudden it went like full right just as took off a mini we all seen the charts every developments.

00:08:45: And how they just basically went left vertical within space of six to eight months courtship is completely unprepared be seos completely unprepared and Karis work advances and didn't swiftly,

00:09:00: very swiftly that causes bad blood because of the way in which it was done yeah right.

00:09:06: There was no the senses that there was no consultation no adult conversations between even large be CEOs and their carriers,

00:09:17: that even the really large ones the ones who she acknowledged the 500,000 teen you are also.

00:09:24: Experiencing the fact that they are now the peasant vendors chenjerai and the care is the Emperor and used to be the other way around.

00:09:31: It's very difficult now where does it where do we come down on this first of if I had the answer to it,

00:09:38: we'd be having this conversation from from my yard in the Bahamas because I bought a lot of Futures in a lot of companies

00:09:47: but sadly we're not in the Bahamas and I'm not going to yours

00:09:51: my guess right now is that we're going to go through at least the first half of 2023 before we see I've seen announcement from Kara's most came out.

00:10:00: Connection with the launch of our deep in the publication of their quarterly results and said we think there may be.

00:10:07: A few green shoots toward normalization of volume may be in quarter three this year,

00:10:22: towards the investor group hedging their bets just in case anything.

00:10:29: Bad happens from the carrier standpoint I don't believe it's going to be that that quick.

00:10:34: The only thing that can truly call and Court normalize.

00:10:39: This thing would be a disaster for everybody because that would be a global recession now we're back in 2008 right we could go back to that well then.

00:10:48: Things will change dramatically unfortunately no one will have learned the lesson.

00:10:53: It will now basically be the shape of squeezing the carrier's on to the last drop of blood leaves them and and behavior will not change it will not change,

00:11:04: so pessimistic about that because I see it I read I see it in reality I'm not speculating here work with companies who can't wait.

00:11:13: Until the shoe comes back and their foot right yeah that's reverse the clock will click until the beginning of this year from the vantage point of

00:11:21: we didn't know about covid hitting so bad and infecting China again is second third time whatever we did know

00:11:29: or nobody expected a war to break out in Europe

00:11:32: what was the vantage point at the beginning of the year the been spotted beginning of the year was that it did that towards the end of 2020 to beginning at 20 23 we start seeing new vessels come out there is a great optimism especially among shippers that,

00:11:46: that would mean a dramatic increase in Supply which would level set the whole thing and and weak

00:11:52: it has that many more adult conversation I think that something was wrong from the get-go and I've called it out as wrong from the get-go

00:12:00: because only a few of those assets will be in the delivered at that time.

00:12:04: Right and this remember takes you know probably nine vessels to run the u.s. string it takes 10 or 11 bezels the year running Europe string at the moment

00:12:16: until you have 10 or 11 of the mountain can't start a new string that that operates with the same number of each type of biscuits right.

00:12:24: So that's going to take time and also while it won't be a zero-sum game a lot of business with

00:12:30: exit in the other hand a lot of capacity that's currently deployed really should

00:12:35: be floating you have 40 year old panamax ships that are massive polluters they will not be able to steam at any kind of speed maybe not over 12 knots because I am o 2023 so they've essentially got.

00:12:50: Thin maximum no eight months left of deployment right

00:12:55: then you got a bunch of carrots that have rear degree adjusted their depreciation period even for the for the vessels that came out let's say 12

00:13:05: years ago to 10 years so you can see some of the first 14,000 teu vessel they actually being scrapped if they need to be

00:13:14: so it's not a zero-sum game.

00:13:17: But it won't add huge amount of capacity and also any complicated The Sting in the tail it even if they did it doesn't matter,

00:13:25: whether you add more capacity first of all if you look at overall Global container Demand versus global container capacity.

00:13:33: It's nearly balanced now there is enough capacity out there.

00:13:39: The problem is not the ships that problem is not the availability of slots the problem is in the bottlenecks that are the ports and the internet and that brings us to China,

00:13:49: I hope to the West Coast and the East Coast I mean you can go wherever you want with this right but but because because the problem is really everywhere also in Europe where we avoided it for a while but there's plenty of congested in your powers well there are plenty of shortages of.

00:14:03: Tribe truck drivers trucks pallets.

00:14:07: You know it's a Miss let but let's start with China if you don't mind let's let's do that let's say we recording this April 28,

00:14:18: 2022 this episode will Air at the beginning of the day so I just about to.

00:14:24: Yeah or a prediction I'm going to be hung up on what yeah yeah I'm sure I'm gonna ask you for protection don't worry about that but but

00:14:32: just just for reference so people know what what you know what part of this crisis were talking about it's a snapshot in time who knows what could happen next week you know

00:14:39: who knows what could happen to next month whatever so this is just a disclaimer we're recording this on the end and of April so let's go what's what are the your major observations with regards to China what are you observing there

00:14:52: why are we where we are,

00:14:54: yes I know why is China doing this that's a question we get all the time and I see it all the time why are they doing this the rest of the world

00:15:03: has needed rest of the world has found a way to live with covid first year and in Denmark in bed most of yuriko is beginning to feel like a bad dream we had once

00:15:12: and and is going away the mosque mandates are nearly gone you the u.s. you cannot fly without masks you know we were

00:15:22: we're free as it were right why is it that that trying to take this approach.

00:15:29: I'm not an expert in the field but what I'm hearing from people who eyes this.

00:15:34: China was very very successful with that zero covid policy for a very long time true.

00:15:42: And because of that they didn't manage to get a very large amount of their population vaccinated because there was no need.

00:15:50: Also that the vaccine is Highly Questionable

00:15:55: to put it mildly in terms of its efficacy and so now when when

00:16:00: trying to conduct really protect itself against go to the Sydney haven't got the herd immunity in the year in a population that the rest of us have achieved and so they're deathly afraid that.

00:16:12: Corona could really run like a wildfire through the through the country and any could.

00:16:19: So that still trying to hang on to the serum covid policy because they feel like they have no other choice unfortunately that impacts the rest.

00:16:28: Because it means that basically Shanghai shut down but there's variant okay you had yet this engine shutdown which didn't last very long.

00:16:36: If that happens again the whole shinjin.

00:16:40: Bay area's we started going to stop there and then we're going to hit up the Shanghai and go even further north right ocean Gennaro kid shot down that was not felt.

00:16:49: In the entire supply chain because that Aerospace values is in more need Electronics than in than anything else.

00:16:58: So the whole Center in complex exports about twelve percent of China's total exports.

00:17:03: For The Echoes 80% of the electronics exports from China so clearly people in that sector would be heavily impacted and but the population at large would not be unless there are looking for the new.

00:17:16: My phone right Shanghai is accompanying bow is a combat completely different story.

00:17:23: They account for extraordinary amount that don't have the percentages of massive amounts of China's export Co-op through those two ports,

00:17:31: mangle still operating completely Shanghai Port is also operating is this isn't really have anything to operate with,

00:17:41: so it's open you guys operating on paper yeah the product is open and and in theory could could efficiently cargo came in it would be offloaded quite smooth early wouldn't now because Shanghai board is full.

00:17:54: So it carries the took advantage of the fact that the port were still open they understood that the massive bubble of pent-up shipment and building and building and building.

00:18:04: And it's going to require into boxes and they took advantage up until very recently of that so it was a Portage operating let's send in.

00:18:13: Ships to be offloaded with all the empties that we can possibly get in there now of course the board has been full.

00:18:22: I mean they're playing Tetris would very large blocks just

00:18:27: is the make it work right there grab Run Out Of Reach of drugs you can't send a referring to Shanghai and I would I would assume they don't have the same problem that they have in l.a. Long Beach where they could only stack it like two levels higher throughout the story a little bit higher than that and yeah

00:18:41: the gancho would despise me and some of the sacrament a tie.

00:18:44: I thought but the but they don't have it's the trend stain is that really deserve determine that right so the poor.

00:18:52: Is ready willing and able the hinterland is not because the consequences of this year covid policy,

00:19:00: as you read in that article in the Wall Street Journal that you Gandhi reference is the trucking side of it

00:19:05: a truck driver has to go through multiple tests before he can get to or from customers the customers themselves there's the factor itself may be shut down as well if they have one covid case they shot also.

00:19:18: It's simply nearly impossible to drive the truck from the factory

00:19:23: into the body shop hi drivers are being quarantined as minute they test positive they're being quarantined sometimes in the calves of that trucks container knowledge drivers had now basically fetid deck Hatchery stoves instant noodles

00:19:38: whatever because they risk sitting in that truck for a week 10 days two weeks.

00:19:44: I need a few willing to pay enormous prizes for a truckload you wouldn't get it no

00:19:49: no and and the volume of trucks is going to take right when I was talking about well if only he gets or a few hundred trucks on the road we're talking tens of thousands of vehicles that need to somehow be

00:20:01: free and they're not and there is the bottleneck right the MC is probably so so so when you look at these very dramatic Maps.

00:20:10: Shanghai that people like to post on LinkedIn so it will try to rectify that a little bit recently and other posts right,

00:20:18: you see is traumatic maps of extraordinary amounts of seagoing things flying off Shanghai.

00:20:26: And they make very juicy compelling visuals that you can show your Co but it's not the truth yeah I have encountered today on marine traffic

00:20:36: become investors are waiting of course there are a lot yeah but it's not as nearly as dramatic as some people make you think it's not nearly as dramatic as some people make it and don't forget.

00:20:44: You weren't you the one who made the comparison to Long Beach audacity the productivity of the Border Shanghai when it's working at full capacity the heck of a lot higher

00:20:53: then protein to virtually any port in the United States and certainly on par with Europe is this because of automation or what's the reason automation automation work rules available capacity available land.

00:21:07: Available number but it's all of the above right there are two let's not forget you got like outshined Gonna Shine so you have two different ports in Shanghai right DIY Gauchos the old one on the river and then you are the answer.

00:21:22: Which is artificial island with a gigantic Port there with all the,

00:21:26: all the modern conveniences the turnaround is going to be quite Swift once it opens up all right Mako is still now,

00:21:35: questionable there in on yellow settings which is not a good place to be because it means you could be red tomorrow I heard rumors that qingdao is the same Beijing is moving in to cover moving into yellow stage.

00:21:49: Has moved into yellow stage this is not over at all.

00:21:53: And nobody knows when it will be over that's the thing which are high right now no it's really yeah nobody knows it could be tomorrow

00:22:03: say that they've talked about soft openings and you know could ease restrictions little bit here and there trials let's see if it worked on tell me a minute that three or four truck drivers catch covid that way or

00:22:16: I found positive they can shut the whole thing down again tomorrow so that's a problem in and of itself of course but the real problem

00:22:23: I think I'm trying to work myself into it is actually not Shanghai the real problem is on the other end and let's talk about this thing that kind of is called the ketchup effect all right so anyway I love that visual because you know anybody who's ever Shake.

00:22:37: All the kids are that they've just opened you know what happens when.

00:22:42: When the vacuum is finally broken right and the bottle will empty quite quickly

00:22:48: as will Shanghai but the mess is going to be everywhere and it's going to take a long time to clear yeah and this is not going to be only in l.a. Long Beach it's going to be everywhere across the u.s. it's going to be in.

00:23:00: Anyway you name it Australia that in America Europe in trays as suffering big time and have congestion issues of their own in multiple ports it's going to be a global problem.

00:23:11: Wonder when the mind is bottled finally breaks the seal right and this is something that we've seen before is this something unlike anything we've seen before because such a big negative or can you compare it to a similar situation seen it before,

00:23:23: Doric porch down know we've seen something happened in the other end the best comparison come up with these is the was it six years ago the ILWU strike on the west coast right where you,

00:23:36: until you get your bottle became the Port of Long Beach and when it finally opened up again the mess with out there and we calculated it

00:23:44: it sounded quite thorough analysis of it that that alone those whatever three weeks of labor issues in one taught no basic six months to clear all six months

00:23:53: yeah and with greater respect to Long Beach sand and and their legs and eyes in different League.

00:24:01: This will take a very long time because when those containers then hits the European color pause and the u.s. ports they were learning to all men are problems.

00:24:10: And European poets they will like Shanghai that very high productivity high levels of automation they will be able to clear on load the best quite swiftly but you have massive truck driver issues and no get to Ukraine.

00:24:23: A lot of these drivers were Ukrainian a lot of them went back to Ukraine tell me to discover their now even if they wanted to they can't leave Ukraine because if you are fighting age and Amanda.

00:24:36: You got to be kind it can't so there's a massive shortage of truck drivers there is a shortage of,

00:24:44: pellets a lot of these products has to be palletized and so when you offload the container that's block stack then you have to get it sized.

00:24:53: The cards and move it on the warehouses.

00:24:55: You can't offload that container until you have those pallets available unfortunately there's a massive pellet shortages in Uruguay because parents require nails and at an ungodly percentage of.

00:25:09: The nails used to Paris in Europe were made in,

00:25:12: Russia okay he's an excellent example of these tiny little thing try me that there's a Shakespeare quote from George the whatever.

00:25:21: For want of a nail horse was lost right and you won't really in the for want of a nail situation I love those second and third order effects and nobody's thinking about right no

00:25:33: right and lemon massive impact because that will then build.

00:25:38: New bottlenecks new build ups when they hit the us where we all know what happens when massive amounts of cargo in the u.s. quickly

00:25:45: so the problem will be transferred to their newest or Hinterland situation will not be fixed in time soon the railroads performance is there's mold at the massive drop shortage.

00:25:56: They're not enough trucks they're not enough chassis there are no overflow Wow's available it's a mess I am an absolute mess.

00:26:07: Right so you can do we continue with the ketchup and now that you built that are living but let's say well at least if that kitchen.

00:26:13: Hit a sponge that could absorb it and move it on whatever be great but not as pontificating hard Concrete in.

00:26:23: A Debian the message that's going to spread maybe the other one the other way to look at it or maybe just take it

00:26:29: contrary view is that okay there's a couple of boards in China yes it's the biggest port in the world it's the biggest manufacturing area in the world but if you spread it out across the u.s. west coast and east coast in Europe and Latin America and so forth.

00:26:43: Things aren't going to be as bad because it's whatever comes out of China is eventually going to distribute across the whole world,

00:26:50: not a bad is is that a valid no no it isn't because the rest of the world is not ready to receive the.

00:26:58: Concern Army of cargo that spent upright I forget how many.

00:27:02: 27 million boxes or something every year that go out through shy is not going to work through this okay kind of spread them it's all over the smooth

00:27:12: it's still going to be a mess maybe about two widespread myth has some of the most urgent stuff been moved to a frayed event afraid is also suffering right the mean large extent that you can't even land in put on the air,

00:27:27: because covid restrictions zero policy they don't have enough facilities 24 for the crew,

00:27:35: it's a quarantine and as they are supposed to so know what can be moved to Air and can pay for it has been moved to air but that capacity there is no capacity

00:27:45: either because the only way they know passenger flights will begin with so that take something like 40% of the of the.

00:27:51: Africa passenger of the system because of no Bailey hole

00:27:55: and and the phrase is not Landing in Shanghai right now because either they are not allowed all their crew restrictions quarantine restrictions all kinds of other fun stuff cause there's no one in the airport is served service like that

00:28:07: and then on top train and rail isn't not only are they going from Russia yeah I mean technically speaking technically it's actually not illegal.

00:28:17: Technically it's not about nobody wants to take the risk saying nobody wants nobody wants to think nobody wanted to take the risk right then your only other option is the southern Corridor that go through Kazakhstan.

00:28:28: But now you're up to 32 days turns it's on to get the car go to Poland if you want to avoid Ukraine and and cost a fortune and the capacity is not there.

00:28:38: It's stuck it's absolutely stuck there yeah yeah your one and only option right now if you can't lay your hands on air freight

00:28:48: is to shift production elsewhere and there are countries that have benefited from that quite extensively Vietnam is an excellent example of a country that benefited they obviously had medicine covid problems of their own but they seem to have sort of put it behind them.

00:29:01: Vietnam has benefited quite a lot particularly on the electronic side of companies at least diversifying their production base away from from China right but

00:29:12: if your supply chain plan an hour and snop take him in a company that relies heavily on Ocean Freight out of China.

00:29:20: You don't sleep well at night right now you don't ask a person like that what keeps you awake at night we'll never hear the end of it not even as a rhetorical question no and then the question on everybody's mind is okay which part is next is going to be meaningful.

00:29:34: And Shanghai opens with a open chord that was from Shanghai to Ningbo so that you can move cargo that maybe right now no

00:29:42: that could be an option and but again the Turkish will have to be tested God knows how many times before they make it to the port of mingle and that Paul is more heavily congested and then Chennai now because it's open

00:29:54: and there there is a lot of manufacturing of course in the Ningbo area

00:29:59: step four is contested but working the whole chain is kind of working but has enough to do already with just a Ningbo goggle it's much that qingdao I mean they're there,

00:30:09: you can speculate endlessly yeah and also I mean we're talking about China a very much as a supply region,

00:30:17: but it's also it's also a major market for European and for us companies to sell into yeah

00:30:24: and none of the stuff is getting through this is going to hurt a lot of economies that rely on a lot of them have local lot of them have local manufacturing to serve the local markets in China but their local manufacturing to a large extent has rigged,

00:30:36: as depend on raw material for those tractor he's coming into China and of course that's a problem as well yep if those factories are in the Shenzhen are you okay for now

00:30:46: on the electronic side and what it gets produced in Shenzhen add other than that exotic.

00:30:52: - a search engine I mean mean entire complex right of course,

00:30:58: if you're in need Sonic industry and you can lay your hands on microchips because there's another one of your secondary or tertiary problems.

00:31:07: Then you're going to be okay out of shinden for now.

00:31:11: Microchips is another interesting one if you wanted to keep coming up with these second and third degree examples.

00:31:17: Combined with one Ukraine you can't apparently make a microchip without Neon gas something is 80% of the world's neon came out in Ukraine.

00:31:28: And the feedstock to make that neon came from you Tau casted Prussia so so that will very shortly if it has no ready lead to massive shortage of my tips,

00:31:39: it says why all of a sudden you're.

00:31:42: Cars that were already only going to be delivered in 12 months it's not 18 months 24 months name something.

00:31:53: Other than other than close that doesn't have a microchip in it right or 10 or 20 microchips in a God knows how many microchips are an electric one car right sure I don't know but I'm betting it's.

00:32:07: A lot 50 60 70 I don't know so booklet if you can lay your hands and chips your manufacturing added turning to good out of Shinji.

00:32:15: Right that's not the problem I you can get it raw material again

00:32:20: as well which you have to because those chips are not made in China but if you're anywhere other than that old Shaman will still work to close work without going further north.

00:32:32: I don't have the answer in the anybody has the answer not even in Beijing they don't have the on

00:32:38: yeah but let's nonetheless shift the conversation little bit to some advice that you will have I mean you've been around the block you've seen crisis where you haven't managed to crisis like this before it's nobody has quite quite quite nuances but

00:32:51: but maybe some some thoughts on concrete advice you would give to someone that's relying very heavily on.

00:32:58: On China right now and on particularly on Ocean Freight from China let's focus on that maybe I think that advice is simple and most people would have already taking it find different places to Source it at least temporarily.

00:33:12: Uh-huh if you're not sitting on massive you're not sitting on massive stock in wherever you are your viewers or Latin American a lot of people aren't at all sitting on massive stock,

00:33:24: then your only option is to try and find alternative sourcing outside of China and they do exist we always talk about low cost country sourcing and and people mean China.

00:33:35: Couldn't talk about places below cross-country Source we've been talking forever about nearshoring and right Shoring or whatever you want to call it.

00:33:44: Some of that is happening now to the extent that people can find raw material and supplies in their areas.

00:33:51: It's not a big wave yet but it's a bigger wave than I've ever seen before.

00:33:56: Hmm even though some of the traces can't quite compete with trying to they can get close you've got Thailand Indonesia Vietnam Malaysia Philippines possibly you've got.

00:34:08: And the idea is not to to rely on another region and then get stuck there but it's the idea is to diversify its spread the risk yeah spread the risk so those who had alternative sourcing all identical products already going there laughing all the way to.

00:34:22: Because they've got stuff to put on put on shelves of flaws in in the retail space and there's a lesson there maybe is not an Essence it's easily

00:34:31: you to be implemented overnight but a lesson that really really needs to be taken up all the way at the boardroom level is there is an occasion of manufacturing in geographical terms right.

00:34:44: Yes I understand that when it's a humming nobody can beat China something almost impossible,

00:34:52: speech on it and you could argue that it will be humming again there's no doubt about it and just when it was humming again but it could also shut down again right and it should

00:35:01: has provided this and for people in single sourcing whether single sort of uh Supply or from country is a very bad no good terrible idea.

00:35:10: And always has been brought

00:35:12: people got away with it and they've been saying sort of well it's so cheap out of China why would we want to add you know a dollar per widget to manufacture some of it in Vietnam when we can get it up China no problem well there you go we saw.

00:35:28: Shadows of that when the in the tsunami and earthquake in Japan and the Meltdown of the Fukushima plant.

00:35:36: Those shades of that as well but the volume the scale was not there to really make people sit up and pay attention.

00:35:44: Right here the scale is down you really really need to think about diversifying your geographical footprint

00:35:51: yeah and that's that's more of a long term thing I mean it's nothing that people can do immediately and then who you are depending on who you are and what you do and what do you manufacture clearly if you're making semiconductors for.

00:36:03: Well the wafer Fab is bolted to the Center of the Earth cost billions of dollars and takes three or four years to build.

00:36:13: Well okay then it does well then started now somewhere and in three or four years at least you'll have you'll be managing your risk in it.

00:36:22: Independent away but to just sit and say take a long time and cost a lot of money is not a good excuse anymore we've seen that right but there are other product that you can.

00:36:32: You can Source from other countries from contract manufacturers that are already have the capability to make these things and it's time to engage them in conversation all right.

00:36:41: Even if you have to pay a little bit more I mean look at customers and I wouldn't pay.

00:36:47: 15 sometimes 20 thousand dollars to move a box from from the taoiseach hides who to the midwestern u.s. you know three years ago there was screaming if the rate went above 3500.

00:37:00: So if that Dynamic exists in the company that's still prepared to go from 3500 to 16,000.

00:37:09: Then why should they not transfer that mindset to.

00:37:13: To manufacturing and globalizing their footprint even if it costs them a little bit more power whatever they make right so so it's not.

00:37:21: South of the whole world now needs to start building new factories a lot of those factors exist

00:37:27: elsewhere in the world if you can get raw material to them any concrete device transportation-related so if you're in charge of running Global transportation and sourcing out of China and wanted to bring stuff in and making this

00:37:38: tough choices and trying to assess a situation what's your best take I think it's sad well you need to personally to spread your risk again,

00:37:45: this is the red thread that runs through all the conversations that I'm having indeed the one we're currently having is is around.

00:37:54: Risk management and spreading the risk is this this whole centralization of.

00:37:59: Of manufacturing and therefore centralization risk is it's time to end it.

00:38:05: So you need to do two things if your volume will carry it first of all you said verse by your character portfolio

00:38:12: you need to be in every Alliance if you can and you need to start thinking about long-term terrific index and then.

00:38:20: Rate structures which is Big right now A lot of people are talking about it some people are hiring people like me to advise them on it where,

00:38:28: a year ago everybody was pooping the idea on both sides of the aisle.

00:38:32: It's now become interesting if you index-linked that the probability with long-term contract is people are scared of something and especially but I can both sides because there's terrible risk.

00:38:43: Associated with fixing a rate for a very long period of time and that's where the index-linked contract comes into play.

00:38:51: Now you're not fixing the rate over a long period of time you're tying it to the development in the overall Market rates.

00:38:59: Great example so you're not dramatically under or over but you're tying it to the treatment index-linked contract is 80 create an index.

00:39:09: Peter Green the starting point and see to agree on whether their floors and ceilings in the in the in the.

00:39:16: Rate development that says no matter what the index is the rate can never be higher

00:39:20: then this and no matter what it says it can never be lower than this this now we are talking collaboration I hate the term partnership you know that we had this discussion before but.

00:39:32: And you saying all of this as a backdrop we we started this conversation you talking about the bad blood that's that's well yeah everything is also one way to relieve the pressure.

00:39:42: Right that they can start having these are all conversations then the Bad Blood doesn't need to be released with the rates drop because the index the indexation will take care of that right.

00:39:53: You can go back to acting managing Supply chains rather than managing our

00:39:57: bad feelings yeah and explain to me again what keeps people what keeps shippers and carriers from using index based rate some carriers don't like them you cannot oh not all carriers like they've been around forever

00:40:09: and I fell in love with them about 14 years ago when I achieve was it was a Pioneer in that field and signed.

00:40:17: One of the first index link contracts with with MERS and and we were this we designed it from the ground up and it's still being sold more or less in that format to to other customers.

00:40:29: I was keeping people from it is a they don't understand it.

00:40:33: I think it's something to do with futures or speculation or is nothing of the sort

00:40:39: it's a pure rate regulation it's not about Futures and haters and products that only find the finest people understand now that all very practical care is a.

00:40:49: Terrified that you know.

00:40:52: The rates will drop quickly and if the index is adjusted every three months then they can't hide behind the fact that six months left of a fixed contract because now it gets adjusted she was a terrified of it because they think they'll be caught.

00:41:07: You know paying astronomical rates when the index just jumps like crazy and this is where these floors and ceilings come in that you need to build into it that says okay everybody except the risk

00:41:19: all right so let's just take control of me random numbers where you sit and starting rate at five thousand dollars.

00:41:24: First whatever size 10 it's in you but we agree that it can never go north of 7 and you can never go south of three.

00:41:33: No matter what happens the shipper you take the risk that it could go to 7.

00:41:39: Fright go to seven and three months of care it takes the risk that it could go go go really low but the floor will stop it from going crazy.

00:41:48: So you can only really have those conversations with people who share your to share that mindset and I would say there are probably five maybe six of the of the top 20 carriers who will

00:42:00: play there are some that are vehement be opposed to it because they're riding the spot and they're happy with that and then making condom body that's no secret

00:42:09: I think is a very short-sighted you but it is what it is right so you need to sort of build what George W bush once called the Coalition of the willing.

00:42:19: Right,

00:42:20: that they work in fine know not everybody will play but then play with the ones who will another shipper side you have to have a certain size and Claude I mean obviously you have to be dealing directly with carrier so you have to have a certain size not necessarily I've sink I've seen

00:42:33: people sign index contract for less than 10,000 to you it's not really that complicated as a matter of fact these days we used to serve volume is your friend.

00:42:42: But that any purchase of anything will know that you get to follow volume is no longer your friend is actually your enemy because you become more dependent on the supplier than they are and you.

00:42:53: Right Soto if you are that's a very large city North American Retailer that begins with w and then and your,

00:43:01: and and you've got clothes in your building your own shipping yeah that's a new trend on oh no that said that to that one begins with l.

00:43:09: But that's a different story then in today's market

00:43:14: it's not easy to find the space and you're no longer popular know you necessarily get the best rates because you have the volume you've actually become more difficult for the carrier to manage then smaller customers and I find smaller clients sometimes get.

00:43:28: Surprisingly good rates because they fit in the easier to fit in that easier for the carrier to play with.

00:43:35: When it comes time to to to play into this or so.

00:43:39: I don't think it's true that you have to be huge in order to play this game I can't tell you whether there's a magic number that says if you have x 100,000 T you then then

00:43:50: you know you're always welcome and if you have below this then nobody wants to touch you that's not true anymore used to be but it's not true anymore at least not from what I'm seeing

00:44:00: yeah you know we've been talking a lot about the right side and the cost side of things want to bond service quality is anything in the contract from a shipwreck perspective that you should be should be moving on and just be creative about and how do you improve or build service quality in the contract a little better

00:44:15: so it's difficult again went in on the driver's seat

00:44:18: there's a shaper to make demands like that is the well-established fact which obviously we spend a lot of time on the 6:30 and.

00:44:28: That sketch your accuracy levels are the whole phrase in the hunt to call it Linus shipping is almost a joke

00:44:35: this is we're back to Trent shipping here the universal comes when it comes and goes when it goes right seriously it's a joke to not - shipping in the sense that.

00:44:46: Every week you can more or less set your clock by the fact that this means will be important so I did that notion is that died at their now congestion has a lot to do with that when you've got all of a sudden there's a flying.

00:44:57: Up to 3 weeks outside of La Long Beach waiting to get in welding.

00:45:02: What do you expect right the whole system will come up and skater Acres you will go out the window

00:45:08: on the other hand I think cares are absolutely terrible at selling a set next to a fairly not a fairly very high up executive for my very large shipping line.

00:45:19: Couple months ago and we're talking about it that's it I don't get it I could get your schedule accuracy to 100%.

00:45:27: On Tuesday this is a Friday me laugh he said no you can see I can.

00:45:31: How go to your sales people to stop lying to the customer and start publishing schedule that you know are not true.

00:45:40: It's not probably schedules that you know simply will not hold Faith the time yeah but then we don't get the business because I tried to time as I know you will get the business because customers will trust you because you speak the truth.

00:45:53: And just get your accuracy will go through the roof and they look great it's not entirely carries fault.

00:45:58: But I do blame the carriers for not telling the truth in the in the public skate forms right.

00:46:04: Because the truth is right now there is no penalty outside of a few very very large customers there is no penalty for late delivery.

00:46:12: And under the current circumstances with the current balance of power is well near impossible for shape it to bake that in so.

00:46:20: Schedule accuracy I don't think you'll get into any contract with service level accuracy is a different story get an idea once greater accuracy should be part of the balanced scorecard

00:46:30: but there are other elements account management conflict resolution commitment availability and things like this.

00:46:39: It can easily go into contracts and they can go in there with penalties and it can go in there with rewards one of the things shippers have never understood.

00:46:48: There was want to be penalties for non performance in I've always found it easier if you combine that with rewards for over performance no care is this going to agree to only being penalized

00:46:59: there's no reward in is nothing in for them they went sticks and carrots yes to carrots.

00:47:06: Well right now the right now the carrier strategy stick and carrot strategy is the beat the customers with their steak until they give them all their carrots.

00:47:18: Different discussion but frankly that's been the the customer approach for so long the Bad Blood goes both ways by the way yeah I mean I also know carrier Executives who are having

00:47:30: great time right now

00:47:32: when during customer meetings right so it's much more about which which quality parameter which showed quality parameters can you realistically measure.

00:47:43: And we'll do then attach rewards and penalties to it that becomes also much easier if you enter into long-term contracts because now your

00:47:52: you're much more tied to each other over a longer period of time in these discussions become normal and proactive rather than transactional and reactivation as they normally been this you can do

00:48:04: put you on their you people do it but it's very doable if you know how y'all just checking the clock here we spend almost I was an hour

00:48:12: diving deep into this into this top Higa and I still feel like we've only scratched the surface because there's so much to uncover maybe I need to do a second Rod at some point in time but maybe as a parting parting words are there any aspects

00:48:26: I know you're sometimes it can be a contrarian which I like very much are there any aspects of this of this crisis where you feel

00:48:33: like you have a Viewpoint that's against the mainstream that's sort of Against the Grain that sort of that your peers really don't get something comes to mind chair,

00:48:42: oh you're asking me to be concerned only I do it without being asked

00:48:46: the only only organically I'm not I'm not forcing you to any kind of theirs is there something great if not that's a dog I'm very contrary to to the overall

00:48:58: understanding of the market overall understanding about that plenty of concerned use when we dive into detail

00:49:04: it's basically went up when I'm discussing would be shows a really don't understand the deeper.

00:49:10: Elements of liner operations and vice versa when I deal with it carries from simply don't understand,

00:49:17: the world of manufacturing outside of Newport support elements of the ports of Doyle immense I don't have any contrarian views I have used on the crisis of.

00:49:27: Bring them good and the piss

00:49:29: okay little that described as always there's always a silver lining in every cloud right is the Silver Lining here is that the c-suite

00:49:38: in every company all over the world have woken up to the fact finally,

00:49:43: that they apparently have some something called a supply chain and apparently it's important and apparently we should invest money in it and timing and people in advance upgrade our skill sets,

00:49:56: just like we have with every other element supply chain as always leave the shadow existence,

00:50:02: in any company because things as work but we just give it to the boys and shipping they'll take care of it now CEOs have really woken up.

00:50:11: Money is being spent money is being invested in systems and then people as I said and and supply chain has come as become fixed agenda.

00:50:22: Not only had board meetings and monthly management meetings.

00:50:26: But also an annual reports I've got bigger for the first time ever we're starting to see the word logistics and supply chain opinion quarterly and annual reports for.

00:50:35: For almost every company it said that it would happen on this background but I'm absolutely delighted every time I see it that's the best thing that has come of this crisis

00:50:45: let's hope it stays that yeah I was going to say it's not just a sign of the times and things are going back to the old the old way don't think I don't think so I don't think so and risk management pool in unending supply chain context will also be.

00:50:59: Be receiving a lot more attention than it has in the past so those two things I would take away as.

00:51:06: Silver Linings but a contrarian view if I have one is I believe this could last through 2023.

00:51:14: Most people are still hoping they're dreaming.

00:51:17: That its maximum this year and then things will start to normalize I don't think so okay there you have it there's you can share and thank you very much I finally tease it out of you much appreciated.

00:51:29: And I hold you accountable to so will schedule the next the next call the next conversation popcorn this whole conversation was off.

00:51:37: He is missing right I recorded the pre conversation too and I'm going to record where we're going to say when the phone is off too.

00:51:44: No dear of course not Bjorn as always was a pleasure thank you very much for your insides I always really much enjoy diving deep into this kind of stuff with you I

00:51:52: just really really value your viewpoints in your experience thanks not for is it was a pleasure and I'm always happy to come back and and that

00:52:02: an even deeper conversation different topics it's a fascinating world for those of us who find these guys think that's awesome I'll hold you to it thanks again and take care of you for having me

00:52:12: fight.

00:52:13: All right that was the logistics tribe podcast episode with Bjorn Vang Jensen from sea-intelligence if you enjoyed Today's Show please make sure to subscribe to the podcast so you don't miss any of the future episodes

00:52:25: I'm boss felgendreher until next time.

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